The U.S. Treasury could tap its cash account of nearly $1 trillion, known as the Treasury General Account, to fund the long-term Treasury bond purchases announced by Secretary Scott Bessent, according to observers. While the government will still eventually have to issue short-term debt, as it would under the current arrangement, the timing of that issuance could be pushed back later than expected, giving somewhat more force to the long-term bond buying.
Two senior Treasury officials said they are considering the TGA as an available funding source, CNBC reported on the 24th. The TGA is a cash account the Treasury holds at the Federal Reserve, with roughly $950 billion remaining. That is higher than the $600 billion target set under the Joe Biden administration. By mobilizing the TGA, the Treasury would gain substantial ammunition to influence long-term Treasury yields.
Last week the Treasury announced it would double the size of its Treasury buyback program from $2 billion to at least $4 billion, which pushed down yields on 10-year and 30-year U.S. Treasurys before they reversed higher within a day. Bessent said the size of the long-term bond purchases could exceed $4 billion, but market skepticism ran deep. On the day, the 10-year U.S. Treasury traded around 4.70% and the 30-year around 5.23%, slightly lower than the previous session but still above levels the market views as a red line.
Notably, the Treasury did not mention a funding source when it announced the long-term bond purchases, and most market participants had assumed it would raise the money by issuing short-term Treasury bills. Unlike other government bonds, T-bills have short maturities and are issued as discount securities that pay no separate interest.
The TGA, by contrast, is an account at the Fed that functions like the government's checking account and is filled with taxes already collected. Even if the TGA balance is used to buy long-term bonds, the point at which the TGA reaches its limit is estimated to be next winter or early next spring, CNBC reported.
Forbes, on the other hand, argued that the TGA itself is already money raised through taxes or bond issuance, so additional short-term bonds will ultimately have to be issued. Forbes noted in particular that because the size of medium- and long-term bond issuance for the second quarter is already fixed, the only way to replenish the TGA is to issue short-term bonds.
